The Australian Financial ReviewBlue SkyLuke Forrestal 28 January...

The Australian Financial Review
Blue Sky
Luke Forrestal
28 January 2012
p.32


Iron ore junior Cabral Resources is trading at less than its cash backing of $14.5 million at the moment.

But the company remains hopeful that some looming milestones could see the discount rectified.

Cabral owns a portfolio of tenements in the state of Bahia, Brazil, directly above Vale's turf, the famed "iron quadrangle" in Minas Gerais. One of the key reasons the company has struggled to gain the market's attention is that it is yet to announce a resource for any of its projects.

But unlike many of its peers, it has taken the view that developing a resource without having an infrastructure solution is putting the cart before the horse.

Cabral's tenements are favourably situated adjacent to a new rail line the Brazilian government is building through Bahia to a new port on the Atlantic coast.

In what should be a catalyst for a rerating, the company is hopeful of having its request for a 15 million tonne capacity allocation granted before the country shuts down for Carnival in three weeks' time.

Then the focus can turn to drilling.

Cabral has to wait for the end of the Brazilian wet season and still requires environmental approval, but it expects to be able to start in March. It has already secured two drill rigs.

Chief executive Michael Bogue says the company should have announced a resource by the end of the year, although every effort will be made to have it out earlier.

The exploration target published last year was between 331 million and 644 million tonnes of coarse grained magnetite iron ore. There is also potential for an early operation based on direct shipping ore.

Bogue is a former investment banker at JPMorgan with decent Chinese connections.

In fact, Cabral was once an advisory business called Rim Capital, which worked with the China Railway and Materials Commercial Corporation.

Rim Capital was responsible for identifying United Minerals as an acquisition opportunity.

(The deal was derailed when BHP Billiton lobbed a competing bid.)